Category: Uncategorized

Barron’s had an unusual cover story not long ago. Instead of an interview with a hot-shot money manager or yet another story about the housing bubble, the paper asked, “Is Your CEO Lying?”

Given that Congress seems more focused on helping troubled CEOs shift the blame for self-inflicted problems onto short-sellers, Barron’s question was a helpful reminder that at the heart of the Enron, Worldcom, Tyco, Lernout & Hauspie and Media Vision collapses—just to name a few—were CEOs who blamed their declining stock price and negative news flow on, among other things, short-sellers.

And in each of those particular cases that CEO landed in jail.

The Barron’s article describes how some enterprising money managers are going beyond the classic forensic accounting techniques pioneered by shorts, and analyzing the “body language” and “non-verbal cues” of CEOs and CFOs to discern whether execs are telling the whole truth and nothing but.

That notion is not quite as groundbreaking as it sounds—hedge fund types and fast-money mutual fund managers especially used extensive, close-up Q & A sessions in their offices and at conferences to gauge management’s “body language” as long as I’ve been in this business.

Some friends think Reg. FD has made it useless to meet with management, owing to the fact that management is expressly forbidden to disclose any material information in private that is not shared publicly. In fact, some investors—and they get written up in Barron’s once in a while—say it’s better to invest strictly by numbers, instead of visiting their companies and looking the CEO and CFO in the eye, because management always sugar-coats the truth anyway.

Still, I find it still useful, for all the reasons Barron’s mentions. After all, Enron’s numbers looked great for a while. (I know a long-only money manager at a firm which puts prime importance on management meetings; he never owned a share of Enron because he had met Jeff Skilling twice, and didn’t trust him as far as he could throw him.)

So anybody who thinks it doesn’t pay to sit in a room with a guy and take his measure is not only missing one of best parts of this business—meeting the interesting and brilliant along with the scummy and the devious—but also the chance to read what’s going on behind the mask.

Now, it is entirely coincidental that Barron’s produced its “Is Your CEO Lying?” cover story two days before a product-recall conference call from Boston Scientific—the former high-flying institutional fave now lurking on the new-low list, owing to several not-meeting-the-number-related disappointments, an 11th-hour bidding frenzy for problem-plagued cardiac care giant Guidant, and product recall announcements that seem to be dropping like errors from the glove of A-Rod.

In light of the latest Guidant recall, I thought it might be interesting to apply some of Barron’s guidelines to the recent conference call. So let’s parse the highly regarded BSX CEO Jim Tobin’s opening comments on that call—courtesy of the indispensable Briefing.com—to see we can see.

Thank you, Larry. I appreciate everybody’s joining us this morning. What I’d like to do is just sort of give you kind of my impressions at the eight-week plus mark of sort of how we are doing here and how things are coming…

I guess basically the question that I get asked the most often is, are you surprised at some of the issues you are finding and are things going with way you expected them to? Are you having buyer’s remorse? You know, those kinds of things. Essentially, here is the deal.

Lots of qualifiers and verbal tics in there. “Sort of” appears twice, along with “just,” “I guess,” “basically,” “essentially” and “you know.”

We knew when we did our due diligence that the CRM business of Guidant had not had its last recall; we know that coming in. And to date we have seen issues that have arisen that were anticipated to arise…. This is not unexpected; actually, this is not our last recall, probably not anybody’s last recall. So from that point of view I would say that we are no better off, no worse off, than we expected to be.

Here he goes with a double-negative “not unexpected” and more qualifiers: “probably,” “to date” and “I would say,” which also starts off the next sentence:

I would say, though, the biggest surprise I’ve had has been around the people at Guidant and how many good ones there are…

Nice, patriotic, cheerleading—entirely setting up the heart of the matter, in my view:

I think the Guidant organization, and for that matter the world, seems to have bought into the idea that the events of last year [product recalls and FDA flaps] were essentially a communications problem, and that all we had to do was communicate better and that would be the end of it. In truth, there are deeper issues than that that will require time to address that lead to the problems that then have to be communicated.

Despite the qualifiers and double-negatives in the setup, Tobin identifies a deep-seated problem, and makes it very clear this is going to take time, although without getting into specifics of how the company will address the “deeper issues.”

So the program that we’re implementing here is aimed at getting to the foundation of those kinds of issues so they don’t recur and so that we can not have to be so good at communicating because we won’t have anything to communicate….

And I think that was somewhat of a new perspective to the Guidant organization, at least to large chunks of it. …

An interesting comment, aimed squarely at Guidant, which speaks volumes about the Guidant culture versus his company’s own.

But he attempts to answer the core question—‘if you could do it over…?’ with an upbeat assessment, as one would expect:

And last but not least, we like the technology, we like the market, we like the people, and we’ve got the technology it takes to be a leader in this space, and that is what we intend to do. So from my perspective we are about where we would have thought we would have been at this juncture.

Hardly a ringing endorsement for the deal—qualified as it is with “from my perspective,” “about where we would have thought,” and “at this juncture”—but what you’d expect from a man who recently committed $25 billion-plus for a fixer-upper.

Then Tobin veers from his straight-ahead approach and flips the blame from his shoulders to Wall Street’s Finest:

And that is not good news for people who were optimistic that I had a magic wand, but it is not bad news either. We are right where we expected to be…

That last—“we are right where we expected to be”—must have come as a surprise to more than a few listeners, because BSX shares sold off during the call.

Still, Tobin wraps up with a characteristically upbeat spin:

So I guess basically at the end of the day, I would say that Boston Scientific remains as optimistic and as confident that this is going to, in the long run, turn out to be a major positive strategic move, that it does all the things for us that we expected it would, and that people will wake up two or three years from now and wonder what they were worried about.

He ends as he started—with a lot of qualifiers: “So I guess,” “basically,” “at the end of the day,” and “I would say” right up front, not to mention using the institutional, impersonal pronoun, as in “Boston Scientific remains as optimistic…” rather than the more urgent and personal pronoun, as in “I remain as optimistic….”

Does Tobin’s language fit the skeptical question of Barron’s cover story? I don’t think so. I think his assessment is about as frank—without going into all the dirty details Wall Street might like—as could be expected from a man trying to meld two organizations while at the same time cleaning up what appears to have been a long-festering mess.

And, stock-wise, he may in the end be right: in two or three year this could look like a great buying opportunity.

But anybody who thinks it’s going to be easy getting from here to there isn’t reading between the lines.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Courage!

—The Cowardly Lion

So Bert Lahr, in the guise of the Cowardly Lion, begins his famous self-motivational speech from the Wizard of Oz—the laugh-out-loud portion of a movie that otherwise scares the daylights out of kids and provides enough bizarre imagery to make adults wonder what kind of potent substances the director might have been using.

Which is probably why that scene came to mind yesterday while reading the latest press release from Patrick Byrne, the CEO of internet-based, negative operating margin-achieving Overstock.com, also known as an Anti-Naked Short Jihadist whose public obsession with a back-office administrative problem turned into a full-blown conspiracy theory involving hedge funds, journalists, and the so-called Israeli mafia, among others.

Byrne’s movement culminated recently in a highly publicized Senate committee hearing targeting all manner of supposed naked shorting manipulation, not to mention dire warnings of purported unchecked hedge fund “power” and “abuse.”

About the only thing the Senators and their star witnesses didn’t blame on hedge funds, to borrow a line from Peter Falk’s character in “The In-Laws,” was atonal music.

But the SEC knows where its bread is buttered, so to speak, and this week its Chairman, Christopher Cox, announced new rules designed to further curb so-called naked short-selling. According to Cox:

“There are still persistent failures to deliver in the marketplace, and some of that is undoubtedly attributable to loopholes in our rules. Today, what we’re moving to do is to close those loopholes.”

Now I am all for eliminating those loopholes. But, as far as I can tell, it won’t change a thing about the way every hedge fund I know handles its short sales.

That’s because, as I have written here before, every hedge fund I have ever known borrows stock before they short it.

The procedure is this: the hedge fund asks their prime broker whether a stock can be borrowed; if the broker locates a borrow somewhere on Wall Street, the hedge fund gives a trader the order to short the stock along with the name of the broker from whom stock has been borrowed. At the end of the day, when the hedge fund reports that short sale to their prime broker, the prime broker won’t book the trade if the stock hasn’t actually been borrowed.

No borrow, no short sale.

Thus, as anybody in this business knows and as the world’s most famous short-seller, Jim Chanos, will tell anyone who bothers to listen, there is no paper trail on Wall Street so clearly marked and so easily documented as the short-sale of a publicly traded U.S. stock.

Which means that the failures to deliver—gall and wormwood to the Anti-Naked-Short-Conspiracy-Theorists, who take them as a sign of hedge fund power, abuse, and market manipulation—must reside somewhere within the brokers themselves, not at the hedge funds who correctly borrow stocks before shorting them.

Nevertheless, the SEC’s belated efforts to tighten its rules generated headline news, including the press release in question, whose heading reads as follows:

Overstock.com Applauds SEC’s Courage in Addressing Naked Short Selling Issue

The body of the release contains the following words of wisdom and encouragement from Mr. Byrne:

“I congratulate the SEC for the courage they showed today, and I am grateful for the leadership of Chairman Cox. It is clear he understands the severity of the problem, and the Commissioners can be proud of the steps they are taking to end the blight of abusive naked short selling upon our capital markets.”

Exactly what sort of “courage” was required for Mr. Cox to tighten up the rules is beyond me. I suspect it is an allusion to the dark forces Mr. Byrne has, in the past, accused of arraying against him and his company.

Those dark forces include—in addition to the aforementioned Israeli mafia—the supposed Russian and Italian mobs, as well as unidentified “miscreants” who are “trying to get the FCC (Federal Communications Commission) to launch an investigation” and “trying to get the DoJ (Department of Justice) to investigate me” as he told Bloomberg television last year.

I am not making this up. “Some of the officials are monsters,” he also declared. “You’ll probably read a headline that I was stopped with drugs or a dead body.”

So I suppose Mr. Byrne thinks the SEC Chairman is taking his life into his hands by suggesting a few new regulations to tamp down naked short-selling, thus “courage.”

Given that the body count of past SEC Chairmen who likewise proposed previous anti-naked short-selling rules is fairly low—zero, by my count—I rank Mr. Byrne’s motivational speech right up there with Bert Lahr in his lion costume:

Courage! What makes a king out of a slave? Courage! What makes the flag on the mast to wave? Courage! What makes the elephant charge his tusk in the misty mist, or the dusky dusk? What makes the muskrat guard his musk? Courage!

What makes the sphinx the seventh wonder? Courage! What makes the dawn come up like thunder? Courage! What makes the Hottentot so hot? What puts the “ape” in apricot? What have they got that I ain’t got?

Whatever it is, it’s not courage.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Personally, I think my headline is more on target than the one that actually ran in the weekend Wall Street Journal, above a story regarding the latest stock-option scam:

Can Companies Issue Options, Then Good News?

As reported, the story itself is straightforward:

New controversy is brewing over the way companies dole out stock options, this time over the practice of granting them just days before announcing good news — an effort to give executives a quick profit on paper.

Known as “spring loading,” such options grants have generated heat in recent days. While spring loading is different from “backdating,” another type of options timing, corporate critics blast it as a form of insider trading. Defenders call it a legitimate form of compensation — and their ranks include a commissioner of the Securities and Exchange Commission.

That last sentence is what gets me.

The fact that Boards of Directors are allowed, under the current rules, to help their pals in management get to G5 status faster by granting them options in front of good news is not nearly so alarming as the fact that an SEC commissioner sees nothing wrong with it.

The Journal duly reports that SEC commish’s logic as follows:

In a speech Thursday before the International Corporate Governance Network, Republican SEC Commissioner Paul Atkins gave a spirited defense of spring loading, calling it a legitimate and low-cost way for boards to efficiently compensate executives. He rejected claims that such awards amount to trading on inside information.

“Boards, in the exercise of their business judgment, should use all the information that they have at hand to make option-grant decisions,” Mr. Atkins said. “An insider-trading theory falls flat in this context, where there is no counterparty who could be harmed by an options grant. The counterparty here is the corporation — and thus the shareholders.”

I don’t know much about Mr. Atkins except he is a lawyer, and that may be everything you need to know. By focusing on “theory” instead of reality, Mr. Atkins has allowed himself to miss the point: this is insider trading, plain and simple.

But before we get into cases, let’s stop calling them “spring-loaded” option grants, because that makes it sound as if the economic payoff for the insiders is simply a bit more leveraged to a rise in the stock price than the payoff for other shareholders when the company announces the expected good news.

No, what has happened is the insiders have given themselves a larger slice of the shareholder’s pie when they know the value of that pie is about to increase. So let’s call them “front-running” option grants, because that is exactly what they are.

On its face, the ability of management to grant themselves front-running options violates the very SEC regulations Mr. Atkins has been sworn to enforce.

After all, Reg FD requires an even playing field for investors: no tips to Wall Street’s Finest; no wink-wink, nudge-nudge to Fido; no nothing to the big hedge funds prior to disclosure of market-moving news, good or bad. So why should management be able to front-run their own news flow?

Using Mr. Atkins’ lawyerly legalese, ipso facto, the thing stinks.

Furthermore, lawyer though he may be, Mr. Atkins’ defense of front-running option grants (that Boards “should use all the information that they have at hand to make option-grant decisions”) is flawed logic.

After all, if Boards are allowed to game option grants based on future news flow, they will give their friends in management option grants in front of good news and only good news. No way will they grant options in front of bad news if they can help it.

So you’ll have companies diluting any windfall accruing to their existing shareholders by granting options prior to all the good news, while forcing existing shareholders bear the full economic loss from whatever bad news comes down the pike.

Res ipsa loquitor, the thing stinks.

A Board of Directors that really wants to do its job and protect the economic interests of all shareholders should allow option grants on a specific date, same time every year, to all employees, no exceptions.

And if that same Board wants to take advantage of good news for the benefit of all, as Mr. Atkins would have us believe it is doing by granting front-running options, there is a much better way to accomplish this that appears to have escaped Mr. Atkin’s lawyerly logic: the company can buy back stock for the corporate treasury ahead of good news.

That’s good for the company, good for shareholders, and good for all the employees who hold options in the equity value of the company.
Anything less, and it becomes lex non distinguitur awop-bop-a-loo-mop alop bam boom.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

The most amusing—and frustrating—part of watching the World Cup soccer matches is the way the players game the refs.

Two guys go up for the ball and invariably the guy who doesn’t get it collapses on the turf, rolls a few times while clutching some part of his body and screaming in pain, his face a contorted mask of agony that bespeaks a ripped tendon, a fibula snapped abruptly in two, or, at the very least, a painful gouge that has ripped out an eyeball and left it dangling from the socket.

The ref acts like he’s never seen a fake before: he blows the whistle and whips out the yellow card and holds it there like a proud first-grader showing his first report card to his grandparents.

Meanwhile, the chump who just got carded makes a face and pulls his sweaty hair out…while the player with the broken fibula gets slowly up on his feet, stretches once and then starts running downfield in about as much apparent pain and agony as the Road-Runner when he decides he’s had enough messing around with Wile E. Coyote and shoots off down the highway in a blur.

The fans get it—they either cheer or roar disapproval, depending on their team. The announcers—I watch the games on Spanish TV because the ESPN coverage is so lame—actually laugh. And the camera invariably lingers on the coach of the Wile E. Coyote team, who shakes his head in disgust and flicks the back of his hand off his chin at the ref.

During the Portugal-France match, one replay showed the Portuguese guy actually a good six inches from making contact with anybody when he flopped down, rolled over, drew the penalty and got up ready for the kick.

Now, this is not meant to be a slur on the Portugal team or their individual ethnicity, nor is it meant to be a commentary on the inherent athletic abilities a player for Portugal might or might not possess: as anybody who’s watched the World Cup knows, the Italians are the best actors, hands down.

Based on the first 117 minutes of their match against Germany, before they finally decided to concentrate on passing and scoring rather than fake broken-leg-rolls and eyeball-gouges, the Italian players actually spend more time in practice working on fake-broken-leg-rolling and eyeball-gouges than, say, passing and shooting.

(Not to say the American team deserved getting any further than it got—how we tied Italy, even with Italy kindly scoring our only goal of the tournament for us, is still beyond me.)

All this is by way of saying that yesterday’s blockbuster news report that Microsoft is planning an “iPod-Killer” device with wireless downloading capabilities in time for the upcoming holiday season is about as realistic as the approximately 620 broken fibula suffered by the Italian front line in its match against Germany.

Now, I know nothing about Microsoft’s actual plans for this so-called iPod-Killer. Nobody from Redmond bothered to brief me on either the technical details or the impending Congressional legislation that will force all consumers ages 16 to 60 to buy it even though it will be the size and weight of an espresso machine in order to accommodate the CD-player, tape-machine and stereo turntable that have been designed in so as to make it fully compatible with all previous versions of the Microsoft Music Operating System Version 2.803 Model Train Enthusiast Upgrade Pack.

So if you’re looking for any insight into the technology issues or software issues or wireless music download issues involved in the thing—you’re reading the wrong guy.

But I do know a little about retail, and how stuff gets from the manufacturer to the store shelf, and by my calendar, it is early July.

That means the “holiday season” for which this “iPod Killer” supposedly will be ready starts in earnest immediately after Labor Day—less than 60 days from now.

Which, with all the logistical and marketing and packaging and quality assurance issues that need to be resolved before any product can get from press release to store shelf, means that unless Microsoft is ready to ship the finished product, oh, a month ago, there is no chance that Microsoft will be selling any such a concept in time for Christmas.

In the meantime, though, like one of those Italian players screaming and rolling and waving to convince the ref that something happened, Microsoft is doing its best to make it seem like something’s really happening in the battle for the next generation music player. So I’m giving a yellow card…to Microsoft.

Next penalty, they’re gone for good.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

Georgia: Button Gwinnett, Lyman Hall, George Walton

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

In Memory of Tim: 1960-2000

GM-Renault-Nissan Wouldn’t Be Easy, Past Auto Pacts Show

Thus reads a headline in today’s Wall Street Journal.

As you might guess, the story beneath the headline pours a healthy dose of cold water on Friday’s electrifying news that GM’s largest shareholder, Kirk Kerkorian, has proposed hooking up with business genius/company savior/Wall Street hero Carlos Ghosn—The Man Who Saved Nissan. And that Mr. Ghosn was considering the idea.

The Journal, in its usually sober, thoughtful manner notes the auto business “is rife with ambitious mergers and alliances that have gone awry,” starting with GM itself, which—let’s use the word “threw”—away billions on a bad deal with Fiat.

While noting that Ghosn, who manages two companies—Nissan and now Renault—on different sides of the world, is intrigued by the enormous cost savings potential of a three-way merger, the paper spends most of the article detailing why the Daimler-Benz merger with Chrysler didn’t work out as advertised.

According to Chrysler’s own executives, different cultures, different agendas and over-optimistic “synergy” forecasts are just a few of the reasons a GM/Nissan/Renault deal could fail, if the Chrysler blueprint is any indication.

And the Journal may be right.

Now, I know less about what goes on in Detroit than almost anybody reading today’s Wall Street Journal. And while I do happen to think that GM’s CEO, Rick Waggoner—who was barely mentioned in the article—is not the guy to get GM healthy (see “General McClellan Awaits Battle…In Detroit,” 12/5/05), I know even less about what goes on inside GM. I couldn’t tell you a thing about who sits on the board and what their agenda happens to be. And I don’t own the stock.

But I do know human behavior, and I can’t imagine what could possibly look better to the GM board of directors than to cut a deal with Carlos Ghosn.

I’m thinking of that scene in the Godfather, after “the old man” has been shot, where Tom Hagen is telling Sonny Corleone to make the deal with Sollozzo:

If we lose the old man, we lose our political contacts and half our strength. The other New York families might wind up supporting Sollozzo just to avoid a long, destructive war. This is almost 1946. Nobody wants bloodshed anymore.

If your father dies, you make the deal, Sonny.

Now, as we all know, Michael Corleone offered his brother a better alternative, and took care of Sollozzo himself.

But, in the case of General Motors, there is no Michael Corleone—no better alternative in the world, that I can imagine, than bringing in the man who turned around one of the worst automobile basket cases on the planet.

I think Sonny makes the deal.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Illegal immigrants should celebrate the Fourth “by going home,” says Jared Taylor, editor of “American Renaissance,” a publication that argues against easing immigration laws.

—Wall Street Journal

Wall Streeter Peter Flanagan founded SSP [Student Sponsor Partners] in 1986 with the idea of providing a high-quality education…to kids who don’t qualify for the scholarships that target academic stars. Mr. Dunn’s latest commitment brings his total SSP pledges to more than $6 million. To date, Mr.Dunn has helped more than 100 kids graduate private high school by paying their tuitions and nearly all—about 96%—have gone on to collage.

—Wall Street Journal

I don’t know Jared Taylor—the “go home” immigrant basher quoted above (from a long and, ultimately, affirming article about immigrants in America, called “Torn on the Fourth of July”).

But I’d guess he’s never waited on tables or painted houses or cut lawns or built stone walls for a living—because that is the work of many of the immigrants he’d like to send back to where they presumably belong.

And I’d bet he doesn’t own a restaurant—after all, as Chef Anthony Bourdain says (in his very funny, eye-opening book, “Kitchen Confidential”), a good chef should speak Spanish, because that’s the native language of most kitchens.

And I’d be surprised if Mr. Taylor has relatives who were born south of the border, as was my cousin’s wife.

Precisely what makes my cousin’s wife different than my grandfather’s wife—born in Sweden but not forced to “go home” by Mr. Taylor’s forebears—is hardly clear to me, except that one has brown skin, while my grandmother had white skin. (The hypocrisy of the anti-immigration mob is not a subtle thing.)

Now, as I said, I don’t know Mr. Taylor, who seems to me to be about the worst we have to offer.

But I don’t know David Dunn, either—yet, whereas Mr. Taylor wants to send the rabble home, Mr. Dunn, as described in a brief but powerful story in the same section of today’s Journal as “Torn on the Fourth of July,” has embraced the rabble by offering their underprivileged children a good education.

And Mr. Dunn did this, according to the Journal, with the help of Peter Flanagan.

Unlike Mr. Taylor or Mr. Dunn, I do know Peter Flanagan. Descended from immigrants, as we all in one way or another have been, Peter has given more of himself to the cause of helping inner city school children get a chance to learn—and, therefore, succeed—than any person I know.

Peter happens to be among the best we have to offer—and David Dunn ranks right up there with him. We’re lucky their forebears decided to come to America.

And luckier still they were allowed to stay.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Well at least Microsoft got rid of the dinosaur-people.

You may recall that hallucinogenic Microsoft Office ad campaign involving office workers wearing dinosaur heads. If you don’t, I am not making this up: somebody at Microsoft decided it would be a good idea to run expensive color ads in major newspapers showing men and women in Dilbert-style office situations wearing dinosaur heads and fretting about problems they have encountered owing to the fact that they haven’t upgraded to the latest version of Microsoft Office.

Sample copy:

Dinosaur 1: “Where’s Dave?”
Dinosaur 2: “Dave’s in Cincinnati.”
Dinosaur 1: “But Dave was supposed to compile the data.”

A third dinosaur sticks his head into the conference room. “Five minutes to showtime guys. Good luck.”

When the female boss dinosaur walks in and says “OK, let’s get started,” the Dilbert-Dinosaurs think, in little cartoon bubbles, “We’re doomed.”

The basic lesson we are supposed to learn, as I see it, is that the dinosaurs died off from the face of the earth millions of years ago in a violent cataclysm of sudden death when they refused to shell out hundreds of dollars each for a buggy, late-to-market, over-engineered Microsoft product.

And now it appears that the same advertising agency which created the Dilbert-Dinosaur campaign has come up with an even better way to drive away Microsoft customers.

“SHE FOUND YOUR FURNITURE AD ON GOOGLE,” reads the headline in yesterday’s full-page color ad, above a picture of a satisfied looking little girl leaning on a large doll-house.

My first thought was, “I didn’t know Google was taking out expensive, full-page color ads just to tout their search engine.” My second thought was, “Business must be tough for Google.”

However, in cute green type below the huge headline is copy which clarifies that this is not a Google ad—it is a Microsoft ad for “Microsoft adCenter, a new search marketing engine,” which “offers a customer conversion rate that is 57% higher than Google and 48% higher than Yahoo!”

The girl with the dollhouse, we are led to believe, is a typical Google search customer, who never actually intends to buy when she—in the parlance of search—clicks through the ads that appear alongside her searches.

But I suspect most people will not get to the cute green copy. They’ll see the headline and they’ll think, as I did, that Google must be the way to sell any kind of furniture, even if it’s for your dollhouse.

The old saw goes that any publicity—even negative publicity—is good. With Microsoft putting up headlines like that, I suspect for Google it’s even better.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

S.E.C. Is Reported to Be Examining a Big Hedge Fund

That was the dramatic headline atop an above-the-fold article in yesterday’s New York Times.

Being familiar with the hedge fund world in general, and the hedge fund supposedly being investigated in particular, I immediately zeroed in on the article, which started off getting right to the point:

One of the nation’s most prominent hedge funds… is under investigation by the Securities and Exchange Commission for possible insider trading, according to government officials briefed on the case.

Now, the motto of the New York Times is, as its declining base of aging readers knows, “All the News That’s Fit to Print.”

And until the media monopoly of big-city papers like the Times was broken by the advent of the Internet, it did seem that if a story wasn’t carried in the Times, it wasn’t much of a story.

While there have been many take-offs on the Times’ high-browed, self-important, Father Knows Best motto over the years, my personal favorite stems from college days, when I was given a copy of a hilarious and subversive student paper from Rensselaer Polytechnic Institute. Its motto: “All the News That Sh-ts, We Print.”

And the deeper I read into Friday’s breathless hedge-fund-being-investigated article, the more I thought it fit the old RPI motto than the Times’ own version.

For starters, the second paragraph tantalized the prospect of many examples of possibly heinous behavior, as follows:

The S.E.C. declined to confirm or deny that it was investigating [the fund]. But a lawyer who once led the agency’s investigation has told Congress that the fund’s trading had repeatedly aroused suspicion among stock exchange officials, prompting them on 18 occasions to refer cases to the S.E.C. for further investigation, records show.

But the juicy details of those cases were not forthcoming:

Mr. Aguirre’s letter to Congress did not specifically identify any of the trades. But according to government officials, the trades Mr. Aguirre said had made the fund $18 million involved one of the biggest mergers in 2001: the General Electric Capital Corporation’s $5.25 billion buyout of Heller Financial…

Now, $18 million sounds like a lot of money—and for a lot of hedge funds it might be—but given that the fund in question had, we are told, $7 billion in assets at the time of the Heller deal….then the Heller-related profits amounted to something in the range of two-tenths of one per cent of the value of the fund.

Furthermore, according to the story, the fund bought its Heller position starting a month before the deal.

Furthermore, any hedge fund or money manager with $7 billion or more in assets that trades as actively as the hedge fund in question, is, I’m betting, likely to have more than a few lucky trades, statistically speaking.

Along those lines, keep in mind the recent blockbuster disclosures from the Wall Street Journal regarding back-dated option grants, in which the Journal discovered that certain companies repeatedly granted its senior managers stock options at the lowest possible stock price of the year, year after year after year—with statistical probabilities that such grants were pure good luck (in the case of KLA-Tencor) as low as one in twenty million.

I’m guessing the odds that an actively managed $7 billion fund gets a few takeovers in its portfolio is not as improbable as one in twenty million.

The weak link in this story, as I read it, is that it’s based on disclosures contained in a letter written by a former SEC lawyer (who, it turns out, was fired by the SEC) to perhaps the last group of people to whom you’d ever think of writing a letter regarding a complicated financial securities issue: members of Congress.

Worse, one of those members of Congress happens to be my own Senator, Chris Dodd, whose main qualification for his job as “ranking Democrat” on the Senate Subcommittee on Securities and Investment is that he has a magnificent, Kennedy-esque head of hair and huge, somber eyebrows. Plus he is smooth and witty on the Imus show. Oh—and his father was a Senator.

(Word has it that Senator Dodd is exploring a bid for the upcoming Democratic Presidential Nomination. Given that he is from Connecticut, which is now I believe technically a wholly-owned subsidiary of the Mohegan Sun casino, I’d say the Senator has as much chance of winning the nomination as the U.S. soccer team had of winning to the World Cup.)

All the news that’s fit to print? Hardly.

More like so-called news.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Old Navy Announces Six Finalists in Nationwide Search for New Canine Mascot

Well, that’s a relief.

In a press release up which I am not making, Old Navy announces it has found six dogs, of which one will be chosen as a new mascot. Better yet, we all get to vote which dog will be the winner!

SAN FRANCISCO, June 23 /PRNewswire-FirstCall/ — Old Navy announces the six finalists in the brand’s nationwide search for a new canine mascot. The finalists have been selected by a panel of celebrity judges as possible replacements for the much-loved mutt, Magic, a canine “spokesdog” who appeared in Old Navy’s advertisements in the late nineties. Now America will choose the winner — Old Navy is asking customers to “vote for the dog they dig”

For those us who haven’t been inside an Old Navy since the last dog was around—which is most of us, judging by the chain’s recent comp store sales (negative 8%, compared with negative 8% the prior year)—this is not so much news as a head-scratching turn of events for a franchise that lost relevance long ago.

Perhaps—and this is just a suggestion—the folks at Old Navy and its parent, Gap Inc., should be focused on human customers rather than canine marketing tools in order to reverse the long-term decline in business at what once was Gap Stores’ growth engine.

What’s next—a revival of “Fall Into the Gap”?

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.